Trade openness, exports and economic growth relationship in india: an econometric analysis

Abstract

Drastic changes have taken place at the global level during the last two decades of liberalization and globalization. In the light of global changes, the Indian government also initiated the process of domestic and external economic reforms in the early 1990s. A shift took place in regard to trade liberalization with special emphasis on export-led growth policy. The present study has been designed to examine the validity of the export-led growth (ELG) hypothesis implemented in India during the Post WTO Period. The study is based upon quarterly time series data covering the period from 1996-97 to 2008-09. An attempt has been made to analyze the relationship between three variables i.e., trade openness, export growth and its impact on economic growth within the framework of Vector Error Correction Model (VECM) using the Johansen Technique of Co-integration and the Block Exogeneity Wald Test. The study found that there is bi-directional causality running from GDP to export growth and vice versa for India. The ELG and GLE hypothesis is valid for India and empirical evidence supports the existence of long-run equilibrium relationship between export growth and economic growth. Unidirectional causality has also been observed between trade openness and economic growth (GDP), which is running from trade openness to GDP. In the light of above findings, the present study supports the hypothesis that there is a positive correlation between export growth and economic growth in India during the post reforms period.